Disallowable expenses explained
In order to ensure they’re not paying too much tax, it’s important for self-employed workers to claim all the expenses that they’re entitled to. However, the rules around which expenses can be claimed are strict, and some sole traders accidentally try to claim ‘disallowable expenses’ on their tax returns. This can result in extra admin and even penalties from HMRC. Here, we outline some of the key disallowable expenses to avoid trying to claim for.
Allowable expenses vs disallowable expenses
Allowable expenses are those which can be deducted from a business’ pre-tax profits. They include things like office costs, marketing and staff training. They are typically things that are used for business purposes only. Disallowable expenses are those which cannot be deducted from your pre-tax profits.
Some purchases are only partially tax deductible. These are often items that can be used for both business and personal reasons, such as a mobile phone or broadband package. In these cases you need to calculate what proportion of the cost is allowable.
Disallowable expenses that are often claimed
The following are the most common disallowable expenses that accountants see clients trying to claim for.
- Client entertainment
Taking clients out for drinks or a meal is not an allowable expense, and must come from the business’ own funds.
- Clothing
Clothing that is bought specifically for work, such as a uniform or items branded with the company logo, is usually allowable. However, a suit for a client meeting or sportswear for a personal trainer is not.
- Home office costs
Those working from home may be able to claim a proportion of their costs, such as heating, electricity and broadband expenses. These should be calculated according to the proportion of your day that they are in use for business purposes. Alternatively, you can claim via the simplified expenses scheme, which means you use a flat rate instead of calculating actual costs.
- Food and drink
Food and drink is another grey area that needs to be handled carefully. While you can claim for meals outside your regular routine – such as grabbing lunch on your way to a client meeting – you cannot claim for your morning coffee on the way to work or the sandwich you buy every day when at the office.
- Personal travel costs
Contrary to popular belief, many travel fares are disallowable. You can only claim for those which are made solely for business purposes. For example, you can claim for the cost of fuel to get to a client meeting, but you must do this based on the mileage to the meeting; you can’t simply claim for the entire tank of fuel. Equally, you cannot claim for your regular commute, or for holidays taken under the guise of ‘business trips’.
- Fines and penalties
Parking fines, penalties from HMRC and other such fees are not an allowable expense. These are a personal responsibility and must come from your own pocket.
Make your tax returns easier
With the help of an accountant, you can ensure you don’t mistakenly claim for disallowable expenses. Accountants can ensure your tax return is accurate and complete when submitted, giving you peace of mind when it comes to dealing with HMRC.
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